Archive for March, 2014

A class-action lawsuit contends that California judges are owed back pay and a pension increase because their salary, frozen for five years, did not keep pace with average increases in state worker pay as required by law.

A presiding judge of the 2nd District Court of Appeal, Robert Mallano, who retired last month, filed the lawsuit in Los Angeles Superior County Court on Jan. 21, suing state Controller John Chiang and two CalPERS retirement systems for judges.

The suit said the defendants have “no discretion regarding the duty” to pay the salary increases required by law and “to increase the payment to retired justices and judges and judicial pension beneficiaries and survivors.”

While judicial salaries were frozen, said the suit, state workers received average salary increases of 0.97 percent in fiscal 2008-09, followed by increases of 0.21 percent in 2009-10 and 0.22 percent in 2013-14.

Judges were told last November they would receive a 1.4 percent pay increase retroactive to July 1 and the matching increase in pensions. The suit said judges also were told the “statutorily mandated salary and benefits” prior to July 1 would not be paid.

Mallano’s suit said he wrote a letter to Chiang in December explaining the legal obligation and “demanding payment of the full judicial salary to which he was entitled,” but he received no reply.

Judge Mallano

At a CalPERS board meeting this month, Alan Milligan, the chief actuary, said there is no formal estimate of the cost if the suit prevails. He said “most or all” of a $97 million liability gain, mainly due to lower salaries, likely would be lost.

“How it plays out over time in the contribution rate, that’s a bit more difficult,” Milligan said. “I would have to do a bit of work to calculate that.”

Board member Richard Costigan said he asked about the suit because of a recent meeting with state Supreme Court Chief Justice Tani Canil-Sakauye and her plea for state funding to end a “civil rights crisis” of access caused by clogged courts.

She said in her annual address to the Legislature on March 17 the courts, hit by “$450 million ongoing cuts,” have “harmful delays in urgent family matters, in business contracts, wrongful termination, discrimination cases, personal injury cases.”

The chief justice proposes a $1.2 billion increase over three years to restore and improve access to courts. During the recession, 51 courthouses closed, 205 courtrooms closed, 30 courts reduced public hours and 37 courts cut self-help/family law services.

Last week a court budget committee voted to request $70 million from the state to plug a hole in the Trial Court Trust Fund, an operational fund that has been paying for some court employee health and pension benefits, Courthouse News Service reported.

Last fall the Judicial Council ended an attempt to build a statewide court computer system after spending $500 million. The projected cost ballooned from $260 million to $2 billion, drawing fire from a dissident group of about 400 judges.

Judges are in two retirement systems because two decades ago legislation switched new judges to a conventional plan that sets aside money each year to invest and help pay future pensions, reducing long-term costs and debt transfer to future generations.

But judges in office before Nov. 9, 1994, remain in a pay-as-you-go system. The California Public Employees Retirement System board sends the governor and the Legislature an annual letter urging pre-funding of the old system to cut long-term costs.

“The board has considered the system’s funding deficiency to be a serious matter for many years,” Rob Feckner, the CalPERS board president, said in a letter to lawmakers this month.

The annual pay-as-you-go payment is expected to be $217 million in the new fiscal year beginning July 1. The present value of benefits owed by the system, the equivalent of debt or “unfunded liability,” is about $3.4 billion.

CalPERS estimates that a $284 million annual payment (20-year amortization) would save $750 million over the life of the plan. A $453 million annual payment (10-year amortization) would save $1.6 billion.

The annual cost of the pay-as-you-go system is projected to peak at $225 million in 2017 and fall to near zero in 60 years. The closed system had 328 active members last year and was making pension payments to 1,889 retirees and their beneficiaries.

In contrast, the pre-funded system for judges taking office on Nov. 9, 1994, or later, “Judges Retirement System II,” had 1,352 active members last year and just 52 retirees and beneficiaries.

It’s one of the best-funded systems in CalPERS, where the overall funding level is about 70 percent. JRSII was 95 percent funded last year, based on projecting market value assets to cover future pension obligations. The debt or unfunded liability was $41 million.

The average salary of judges in JRSII was $179,486 and the average judge pension was $116,973, according to the CalPERS annual valuation report issued this month.

The JRSII employer contribution for the new fiscal year is 24.6 percent of pay (about $63 million), up from 22.7 percent this year. Most judges contribute 8 percent of their pay.

The pension reform Gov. Brown pushed through the Legislature two years ago, the Public Employees Pension Reform Act, cut the pensions for most new hires after Jan. 1, 2013, in CalPERS, the California State Teachers Retirement System and 20 county systems.

The pensions of new judges were not cut by the reform. But they are covered by a provision that calls for a 50-50 split between employers and employees of the pension “normal cost,” the annual debt excluding the unfunded liability from previous years.

Because of an increase in the JRSII normal cost, the employee contribution of new judges covered by the reform act will increase to 15.25 percent of pay in July, up from 14.25 percent this fiscal year.

Another small CalPERS plan, the Legislators Retirement System, was closed to all new members by the pension reform act.

A term-limit initiative in 1990 barred pensions for new legislators, but the LRS continued to provide pensions for the half-dozen constitutional officers elected statewide and several top legislative staff.

The LRS had only 11 active members last year and paid pensions to 250 retirees and beneficiaries. The system has a small surplus, 105 percent of the projected assets needed for future pensions and a market value investment fund of $122 million.

With a high proportion of retirees, the LRS has a conservative bond-laden investment portfolio and a lower earnings forecast. The system also has generous benefits and members that tended to enter the system at an advanced age.

The result is a very high normal cost. Following the reform act requirement to pay half the normal cost, CalPERS set a new state rate of 42.3 percent of pay or $639,838, much higher than the the actuarial rate, 17.2 percent of pay or $259,921.

Board member Bill Slaton, noting that the surplus is likely to grow under the reform act policy, asked what happens to the LRS fund after the last beneficiary is paid, presumably many decades from now.

“I don’t think I have ever seen a plan get to the very end,” said Milligan. But after the last LRS beneficiaries are paid what they are owed, he said, any surplus funds would revert to the state.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 31 Mar 14